Jay Grossman, a Florida-based attorney, was sued by the Commodity Futures Trading Commission in a federal court in Florida for allegedly aiding and abetting violations of law by his clients in connection with their precious metals transactions for retail persons.
Although the CFTC alleged that Mr. Grossman engaged in wrongful conduct since at least 2009, the agency charged him with violations of law solely between July 16, 2011, and February 25, 2013. This is because on July 16, 2013, the Dodd-Frank Act became effective, making the relevant transactions subject to the CFTC’s enforcement authority.
Specifically, the CFTC alleged that, during the relevant time, Mr. Grossman helped four of his clients—who allegedly held themselves out to the public as metals clearing firms—to engage in unlawful off-exchange retail commodity transactions and fraud. These firms included Hunter Wise Commodities, LLC and related entities. The CFTC also charged Mr. Grossman with assisting similar violations by other clients of his.
Each of the firms assisted by Mr. Grossman previously has been subject to orders by federal courts finding that their precious metals transactions violated applicable law.
In general, firms selling physical metal on leverage to retail clients and providing ancillary services (including financing) must comply with strict requirements regarding handling the physical metal and customer funds. Instead, the referenced firms in this action typically held customer funds improperly and never owned or processed physical metal, as required.
According to the CFTC’s complaint in this matter, Mr. Grossman’s “role went well beyond the provision of legal advice” in connection with assistance to Hunter Wise and other companies.
Among other matters, charged the CFTC, Mr. Grossman, “helped defraud retail customers by preparing documents, including account agreements … that he knew would deceive customers throughout the lifecycle of their retail commodity transactions.” The agency claims that Mr. Grossman was aware that relevant transactions were typically “book entries” and did not involve physical metals. Mr. Grossman is also alleged to have purposely misled courts in connection with lawsuits involving the CFTC and brought by purportedly defrauded retail clients.
In its complaint, the CFTC quotes from statements made by Mr. Grossman, captured in conversations tape-recorded by a principal of one of Mr. Grossman’s clients, to help support its charges.
According to a statement issued by Aitan Goelman, the CFTC’s new Division of Enforcement Director,
[t]his action shows that the Commission will not hesitate to bring cases against gatekeepers, including attorneys, who are complicit in violating the CEA. Lawyers and accountants have the professional responsibility to avoid participating in unlawful conduct that is perpetrated by their clients.
In addition to charging Mr. Grossman with aiding and abetting his clients’ prohibited off-exchange futures transactions and fraud, Mr. Grossman was also charged with aiding and abetting his clients’ violations of the new fraud-based manipulation provisions under Dodd-Frank and the CFTC rule that prohibits the intentional or reckless use of “any manipulative device, scheme or artifice to defraud.” (Click here to see my views regarding this new statutory authority and CFTC rule in the article “CFTC Sues IB Employee for Unauthorized Trading and Concealment; Charges Violation of New Anti-Manipulation Law and Rule) in the March 17 to 21 and 24, 2014 edition of Bridging the Week.)
My View: This is an important case well worth watching. Although the facts of this case may be particularly unsavory, many will dispute that counsel—whether outside or in house—are gatekeepers. Insisting that lawyers must avoid participating in unlawful conduct is different than suggesting that they perform any function other than to serve as advocates, confidants or advisors.